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Three Essays on a Financial Crisis: A New Keynesian DSGE Approach with Financial Frictions

Keah, Kanghoon (2014) Three Essays on a Financial Crisis: A New Keynesian DSGE Approach with Financial Frictions. PhD thesis, University of York.

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Abstract

This thesis aims at enhancing our understanding of a financial crisis by using New Keynesian frameworks with financial frictions and applying Bayesian methods to the dynamic stochastic general equilibrium (DSGE) models. First, we use a Gertler and Karadi (2011) type closed economy DSGE model to investigate a source and the transmission mechanism of a financial crisis. We show that a collapse in borrowers' net worth could lead to a real contraction by limiting the the bankers' credit supply to non-financial firms. In addition, our simulation indicates that the central bank's credit market intervention could be an effective tool in alleviating the financial crisis by restoring the private financial intermediation. Second, we simulate a sudden stop crisis in an emerging market economy by using a small open economy DSGE model with financial frictions. We show that foreign lenders' negative perception on an emerging market economy could actually lead to a recession via sudden stops in foreign capital inflow and the rise in cost of foreign borrowing. In addition, we establish that a sudden stop crisis could be aggravated by (i) the substantial degree of financial frictions in the economy, (ii) the heavy reliance on foreign resources in capital production, (iii) the choice of a fixed exchange rate regime, and so on. Finally, we estimate the above small open economy DSGE model by using the data from South Korea and the US. We obtain sizable and significant estimates for key parameters in the model, which support the theoretical arguments above empirically.

Item Type: Thesis (PhD)
Keywords: financial crisis, New Keynesian DSGE, Bayesian MCMC
Academic Units: The University of York > Economics and Related Studies (York)
Identification Number/EthosID: uk.bl.ethos.617182
Depositing User: Mr Kanghoon Keah
Date Deposited: 28 Jul 2014 13:40
Last Modified: 08 Sep 2016 13:31
URI: http://etheses.whiterose.ac.uk/id/eprint/6557

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